Crypto Companies Are Taking a Huge Gamble: Will It Pay Off?

In recent times, a significant number of crypto companies have taken a major gamble by investing huge sums of money in sports advertising. The list of crypto partnerships involving a sports franchise or individual is too long to cite and is a sign of the growing mainstream influence of digital currency.

Things went smoothly as the market continued to grow, with investors delighted by the large and rapid returns. It led to one crypto sponsor deal after another as companies within the sector perhaps thought that the good times were here to stay. However, as many people expected, the cryptocurrency market hit a serious downturn.

Certain organizations seem to have bitten off more than they can chew, but is this the case for everyone? Read on to find out more about the big crypto partnerships gamble and whether it is likely to succeed.

Crypto Companies Are Going Big on Sports Advertising

Cryptocurrency brands doing things in half measures is pretty rare. Therefore, it is no surprise that many went all-in regarding sponsorship deals. According to a Bloomberg report in May 2022, crypto companies had spent over $2.4 billion on sports advertising during the previous 18 months.

These deals included crypto sponsoring F1, and soccer teams such as Chelsea and Barcelona, not to mention developing partnerships with MLB and NBA teams. 

Here’s a quick overview of some of the crypto sponsorships of note:

• Chelsea FC, a soccer team in the English Premier League, signed a $23m deal with WhaleFin to display the brand’s logo
• Crypto.com became the official crypto sponsor of F1
• Crypto.com announced a historic partnership with UFC in July 2021, where it became the mixed martial arts organization’s first global Official Fight Kit Partner
• Coinbase became the official digital currency exchange site of the NBA, as well as the NBA G and WBNA leagues
• The famous Staples Center in Los Angeles was renamed the Crypto.com Arena in November 2021
• The Dallas Cowboys NFL team entered into a partnership with Blockchain.com  

Furthermore, some crypto companies paid $7 million for a 30-second ad during the 2022 Super Bowl! Clearly, brands in the niche felt that money was no object in their mission to spread the word about cryptocurrency.

Why Did It Happen So Suddenly?

The crypto market experienced rapid growth in 2020 and 2021. At one point in March 2020, Bitcoin was trading at just over $6,000. By January 1, 2021, its price was over $32,000, reaching a record of over $68,000 in November 2021. The overall market value of cryptocurrency exceeded $3 trillion.

Crypto companies made a huge amount of money in a very short period and decided to roll the dice on sports partnerships. These brands elected to focus on advertising in the world of sports for the same reasons other companies do. They wanted to use crypto’s momentum to tap into huge fanbases, not to mention fan loyalty. A well-placed ad can turn an unknown company into an overnight sensation.

It is a well-known fact that major sports deals make significant market waves. By creating crypto partnerships with nationally and internationally recognized sports franchises and personalities, companies could gain huge traction in quick time.

Sports teams, followed by fans desperate for success, were only too happy to get their hands on cryptocurrency money. Therefore, it was a mutually beneficial situation. That is, until the market crashed.

Going Overboard

The good times didn’t last long. By January 2022, BTC’s price was less than half its record high. After a brief recovery, Bitcoin’s price fell to almost $18,000 in July 2022, and other digital assets lost huge value. The complete collapse of the stablecoin Terra was another dark day for crypto. Many investors lost their life savings when the value of Terra plummeted almost to zero in May 2022.

Suddenly, organizations that had gone in big on crypto partnerships realized they couldn’t afford them. Voyager Digital, a cryptocurrency platform that signed numerous high-profile deals in 2021, filed for bankruptcy in July 2022. The company has over 100,000 creditors, anywhere between $1 billion and $10 billion in assets, and similar liabilities.

Crypto.com is another brand that may have overplayed its hand during the boom of 2021. One report suggests that the exchange has cut the scope of agreements with major sports organizations, including its deal with FIFA for the 2022 World Cup.

According to Angel City, an L.A.-based team that signed a deal with Crypto.com, the exchange withheld payments and backed out of the deal. It also dropped out of a deal with the UEFA Champions League, reportedly worth nearly $500 million. Furthermore, up to 40% of the company’s staff left between June and August.

Will Sports Teams Want to Engage in Crypto Partnerships?

In a case of extraordinarily poor timing, the Washington Nationals MLB team signed a deal worth $38 million with Terra in February 2022. Within months, Terra had effectively disintegrated. With Crypto.com and other companies pulling out of deals, will sports organizations want to risk signing deals in the future? Signing a $100 million deal is one thing; getting full payment is quite another.

Also, there is a risk to a franchise’s reputation by aligning itself with a company that could potentially fail. For example, there’s a growing trend of teams naming their stadiums after crypto companies, like Crypto.com and the Staples Center. However, such deals can quickly lose their luster if a sponsor hits the skids. No one wants a stadium named after a failed or struggling company!

Indeed, there is another dilemma. Do sports franchises want to encourage fans to invest in a risky cryptocurrency by plastering its logo on billboards within the stadium?  

Will This Gamble Pay Off?

It is too early to say in a largescale sense, but certainly, some companies have overreached and will pay dearly. It seems unlikely that Voyager Digital will be alone in instigating bankruptcy proceedings. Even Crypto.com, a giant in the industry, is suffering the effects of overreaching.

According to Bloomberg, during the height of the 2022 bear market, the Bank of America’s crypto users shrunk by around 50%. Cryptocurrency trading experts point out that the potential for massive profit hasn’t waned, with some companies making fortunes during the so-called “crypto winter.”

However, whether the big gamble on crypto sports sponsorships pays off depends on how quickly the market rebounds if it does at all. The limited history of cryptocurrency suggests that it will bounce back, but time will tell.